Wittmann (UK) Ltd v Willdav Engineering SA

A guarantee securing a buyer’s payment obligations remains effective where financing arrangements transfer title in goods to finance companies and those companies assume liability for part of the price, provided the buyer’s original obligation is reduced rather than wholly discharged. The contractual effect of the arrangements depends on the parties’ intention. A general reference to financing will not necessarily impose an enforceable obligation on the seller to contract with nominated finance companies. A guarantee limited to identified indebtedness does not ordinarily extend to wholly new obligations substituted for that indebtedness. Protection given to a primary obligor against dealings affecting the guaranteed debt may preserve liability where security is transferred.

Wittmann supplied process equipment to Automold Ltd under several purchase orders. Automold’s parent company, Willdav Engineering SA, executed a deed guaranteeing Automold’s indebtedness to Wittmann. Financing companies later acquired title to parts of the equipment and paid portions of the purchase price, while Automold remained liable for the balance. Automold went into liquidation, and Wittmann claimed the outstanding sum from Willdav.

The High Court gave judgment for Wittmann. Willdav appealed, arguing that the financing arrangements discharged Automold’s original contract and substituted new obligations outside the guarantee. The central issue was whether the guarantee continued to attach to Automold’s residual liability.

1. Appeal dismissed. Moore-Bick LJ gave the leading reasoning. Ward LJ expressly agreed with it. Buxton LJ agreed that the appeal must fail but differed in limited respects.

2. Contractual financing obligation. Moore-Bick LJ held that the request for quotation’s reference to possible financing merely indicated that the seller might be asked to invoice a finance company. It did not impose an enforceable obligation to contract with a finance company nominated by the buyer, especially on terms less favourable than the original bargain. The detailed offer made by Wittmann contained no such financing obligation. Ward LJ agreed. Buxton LJ considered that those objections could not properly be relied upon by Willdav in the commercial circumstances found by the judge.

3. Effect of the financing arrangements. The arrangements did not necessarily discharge the original sale contract and replace it with new contracts. The parties intended Automold’s original obligation to be discharged only to the extent that Wittmann obtained rights to payment from the finance companies. Automold therefore remained liable for the residual balance, and the guarantee continued to have content and applied to that liability.

4. Scope of the guarantee and security. If entirely new obligations had been substituted, clauses 3.1 and 3.2.2 would not have extended the guarantee to them. That alternative analysis was unnecessary on the facts. The transfer of title, which involved parting with security, did not discharge Willdav because it had undertaken liability as a primary obligor and the guarantee’s terms preserved liability against relevant dealings.

5. Consent to variation. The judges’ observations on the alternative Holme v Brunskill argument were obiter. Moore-Bick LJ distinguished variation of a guaranteed contract from its discharge and replacement, and considered that agreement to extend a guarantee to wholly new obligations would need to be evidenced in writing under the Statute of Frauds 1677. Buxton LJ considered that assent, rather than mere knowledge, could prevent discharge where altered terms remained within the general ambit of the guaranteed obligation, and that the statute was irrelevant if the guarantee itself was not amended. Ward LJ left the issue undecided.

1. Court of Appeal (Civil Division) dismissed Willdav’s appeal in [2007] EWCA Civ 824.
2. High Court, Birmingham District Registry, Mercantile List Her Honour Judge Alton gave judgment for Wittmann in the sum of £405,255 and interest under the guarantee.